PORTFOLIO SPOTLIGHT
“ When you think about how alpha is generated in a portfolio , it has to come from two sources . One is the stocks being picked that outperform , and the second is stocks that you avoid that underperform .”
— Joe Huber
vide this level of information , Huber Capital Management developed tools to help it construct what the cash flows and balance sheets of these companies within corporations might look like . This produces a detailed cash flow for each of the businesses , which is aggregated to the parent level , where year five in the analysis is the normalized year .
This all goes into Huber ’ s modified discount model , which generates the valuation , expected amount of relative alpha , and potential upside for the overall company . And that upside forms the basis for the target weightings within a fund ’ s portfolio . This is then adjusted for various risk characteristics within the investment process .
Capital Gains ? Ixnay That
Joe Huber is proud of the performance track record of the Huber Select Large Cap Value Fund , which he touts as a low-volatility product that hasn ’ t had capital gains distributions for the past 17 years . When addressing the Huber fund ’ s risk and volatility profile , Morningstar notes that during the past 10 years the fund on average has generated a better alpha and Sharpe ratio than its category peers — and a lower standard deviation besides . As for the capital gains , Huber says he employs tax-loss harvesting and other strategies to eliminate potential capital gains distributions .
That said , the fund has had its down years , including a period of several years during the last decade . “ No manager outperforms every year all of the time , and we ’ re no exception to that ,” Huber says . He adds that there are two types of market conditions when his funds will generally underperform . The first is when price momentum drives the marketplace . “ We ’ re very price sensitive ; we don ’ t want to overpay for securities .”
The second is during market panics . “ When you consider the type of companies we invest in , they ’ re very good businesses underperforming during a short time period . But the market prices them as if they ’ ll underperform forever ,” he
says . “ During those periods of market panic we tend to underperform because the type of stocks that we like are the kind of stocks that people sell .”
He adds that during panics his firm doesn ’ t try to catch the proverbial falling knives . Instead , it waits for the fear and mayhem to subside and then tries to ascertain which stocks are being thrown out unfairly as a result of the turmoil . “ Because we ’ re liquid and are smaller , we can quickly build our positions .”
Huber says the retail side of his firm ’ s business ( it also serves institutional clients ) has been driven by financial advisors who want funds with good , consistent returns with lower volatility and lower taxes .
“ We think any investor with a horizon of more than five years is the ideal candidate [ for these funds ],” he offers . “ That ’ s because over a five-year period the markets almost never go down , and we ’ ve been able to provide historically solid returns with lower market volatility and zero taxes .”
PHOTOGRAPHY OF JOE HUBER COURTESY OF HUBER CAPITAL MANAGEMENT JANUARY / FEBRUARY 2025 | FINANCIAL ADVISOR MAGAZINE | 47